Trade Me prospectus forecasts 12% revenue growth in 2012

Trade Me prospectus forecasts 12% revenue growth in 2012

By Paul McBeth

Nov. 9 (BusinessDesk) – Trade Me is forecasting 12 percent growth in its revenue streams in its offer document for investors to buy 34 percent of the online auction.

The Wellington-based company currently owned by Fairfax Media expects revenue to grow to $144.8 million in the 12 months ended June 30 next year, from $128.8 million in the year just gone, according to its prospectus lodged with the Companies Office.

Earnings before interest, tax, depreciation, and amortisation are forecast to grow 8 percent to $104.8 million, with bottom-line profit $68.7 million. Cash-flow is forecast to grow 7.9 percent to $96.7 million in the 2012 year.

The offer, which isn’t open to the public, will see brokers and institutional investors pay $2.70 a share to get a stake in the online auction site, which will float on the NZX and ASX. The document comes after a bookbuild process was completed yesterday, in which Fairfax will pocket $529.5 million from the deal which it will use to repay its own debt.

Trade Me flagged an expected dividend of 6.8 cents per share in the 2012 year, with a further 5 cents per share return likely for the first half of the 2013 financial year. Owner Fairfax took a $220 million dividend in the 2011 financial year, using it to cancel related party debt owed to the auction site.

“The IPO (initial public offering) of Trade Me will enable Fairfax to reduce debt and provide greater financial flexibility,” Fairfax chief executive Greg Hywood said in a statement. “Trade Me will continue to be an important component of Fairfax’s multi-platform strategy.”

The sale will raise $363.5 million, while a further $166 million comes from a drawdown on a fresh $200 million three-year debt facility Trade Me set up with Commonwealth Bank of Australia as part of the partial float.

“We believe that in the future, more business will be done online and that Trade Me’s existing market position means the company will benefit from this trend,” incoming chairman David Kirk said in the prospectus. “Opportunities to enter new markets have also been identified.”

Kirk said Fairfax currently intends to keep its 66 percent stake in the company.

Trade Me has been considered the jewel in Fairfax’s crown, growing revenue and underlying earnings since the media group bought it under former chief executive David Kirk in 2006 for some $700 million, a price considered steep by analysts at the time.

Fairfax reported a loss of A$401 million in the year ended June 30, reflecting write-downs of A$651 million on the value of its mastheads, customer relations and goodwill. That turned around a profit of A$270 million in the 2010 year.

The write-downs added to the A$513 million impairment it took in 2009 against mastheads and goodwill that resulted in a loss that year and saw the company’s credit rating cut below investment grade to BB+.

Fairfax Digital and Trade Me were the stand-out performers in the latest year, with revenue gaining 10 percent to A$234 million and earnings before interest, tax, depreciation and amortisation gaining 6.6 percent to $118 million.

Shares of Fairfax rose 3.3 percent to 93 Australian cents on the ASX.

(BusinessDesk)

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